Last week we discussed “Starting a De Novo Community Bank in 2026” but what is a community bank? The term “community bank” refers to a designation or category of financial institution based on factors like asset size, operational focus, geographic scope, and business model, rather than a unique legal charter type. Community banks operate under the same standard charter options as other banks, but they are typically smaller institutions that emphasize local lending, relationship-based services, and community reinvestment.
The Federal Deposit Insurance Corporation (FDIC) provides a research-based definition for community banks, which includes criteria such as:
The primary differences between community banks and other chartered institutions lie in regulatory treatment, supervision, scale, ownership, and strategic focus, rather than the charter document itself. Community banks disproportionately hold state charters (over 80%), which can offer more flexibility and lower costs compared to federal charters favored by larger national banks. Below is a comparison of key differences.
| Aspect | Community Banks (Using Standard Charters) | Other Charters (e.g., National for Large Banks, ILCs, Trust Banks) |
|---|---|---|
| Charter Authority & Supervision | Often state-chartered (non-member or member), supervised primarily by state agencies plus FDIC or Federal Reserve. Federal charters (national banks) are supervised by OCC. Dual system allows choice based on needs. | National charters (common for large banks) are federally supervised by OCC and require Federal Reserve membership. Specialty charters like ILCs (state-limited, e.g., Utah) have FDIC supervision but exempt parents from Bank Holding Company Act, allowing non-financial ownership. Trust banks focus on fiduciary activities with lighter deposit requirements. |
| Size & Scope | Assets typically <$10B; local or regional focus with fewer offices (e.g., <75) and operations in 1-3 states. Emphasize small business and consumer lending in underserved areas. | Larger national or regional banks have >$10B-$100B+ assets, nationwide operations. Specialty charters like ILCs or SPDIs are limited-purpose (e.g., payments, crypto custody) and can be owned by fintechs or retailers without full banking powers. |
| Regulatory Relief & Obligations | Benefit from tailored regulations, e.g., simplified capital rules, longer exam cycles (18-36 months), and exemptions under laws like the 2018 Economic Growth Act for banks <$10B. Stronger Community Reinvestment Act (CRA) focus on local needs. | Larger banks face stricter rules (e.g., enhanced prudential standards, stress tests for >$100B assets). Specialty charters avoid some holding company oversight but may lack full deposit insurance or lending powers. |
| Ownership & Governance | Often privately owned, locally controlled, or mutual; board tied to community. For-profit but prioritize local reinvestment over maximization. | National/large banks often publicly traded with institutional shareholders. ILCs can have commercial parents (e.g., non-banks like retailers). Trust companies focus on wealth management without broad ownership restrictions. |
| Powers & Services | Full banking powers (deposits, loans) but tailored to local markets; more likely to lend to low/moderate-income households. | Broader for large nationals (e.g., international ops). Limited for specialties: ILCs can’t offer demand deposits; trust banks restricted to fiduciary services without general lending. |
| Trends & Preferences | Trend toward state charters for cost savings and local regulator access; 97% of U.S. banks are community-sized. | Larger banks prefer national for uniformity and preemption of state laws. Specialty charters attract non-traditional entrants (e.g., fintechs) for niche activities. |
Although community banks operate under similar charters, they stand out due to their smaller size and strong focus on serving local communities. This approach affects how regulations are applied and allows for more operational flexibility. On the other hand, credit unions have separate charters, either federal or state with specific membership requirements and certain tax benefits. However, they are not classified as banks and are limited in the amount of business lending, they can do. When deciding whether to start or convert a bank, important considerations include plans for growth and the costs associated with regulatory compliance. For any questions, feel free to get in touch with us at CCG Catalyst for a discussion.
